TREASURIES-Yields hover near multi-year highs ahead of auctions

Reuters Staff

5 Min Read

* Three-year yields hover near 10-year highs
* 10-year yields near four-year highs
* Treasury to auction $28 bln in three-year notes
By Kate Duguid
NEW YORK, March 12 (Reuters) - Yields on the three-year and
10-year U.S. Treasury notes hovered near multiyear highs ahead
of auctions of both maturities later on Monday, which may be
pressured up further if demand for the increased supply is weak.
Strong payrolls data reported on Friday and a continued
rally in U.S. equities supported Treasury yields in early trade.
A high yield going into auction could limit demand from bidders
at that level, widening the spread between the expected high
yield when the auction starts, versus the actual high yield
during the auction. A wider spread is called a "tail" and
indicates weaker demand from bidders.
"Auctions last month tailed," said Tom Simons, money market
economist at Jefferies & Co in New York, referring to February's
near-record issue of supply. "If yields get a little too rich,
you’ll see a repeat of that scenario."
The yield on the three-year note was last at
2.436 percent, slightly off the 10-year high of 2.455 percent
hit on Friday. The benchmark 10-year government note
was last at 2.890 percent, just below the 2.957 percent hit on
Feb. 21, its highest since trading above 3 percent in January
2014.
The Treasury Department will auction off $28 billion in
three-year notes and $21 billion in 10-year notes on Monday. The
three-year supply has increased by $2 billion from the last
auction, and the 10-year reopening is $1 billion larger than the
last auction.
The supply of U.S. debt at auction has increased as the
Federal Reserve has begun to withdraw liquidity and reduce its
bond buying. The government has also been forced to boost
issuance to help fund President Donald Trump's tax overhaul and
two-year budget deal.
The federal debt load is expected to swell by as much as
$1.5 trillion because of the tax overhaul signed into law in
December, while the budget agreement would boost government
spending by almost $300 billion over the next two years.
The increased issuance is also expected to put downward
pressure on prices, driving yields up. Weaker demand in February
was in part attributed to the growing supply.
Still, "We're not at a point yet where auction sizes are so
big that it causes real digestion issues," said Simons. "We're
still talking about the difference between a really good auction
and an average one."
Also in focus this week will be the publication of Consumer
Price Index data on Tuesday, a key measure of inflation.
February's number beat estimates, increasing expectations the
Fed may raise interest rates a fourth time in 2018.
March 12 Monday 10:39AM New York / 1439 GMT
Price
US T BONDS JUN8 143-14/32 0-10/32
10YR TNotes JUN8 120-8/256 0
Price Current Net
Yield % Change
(bps)
Three-month bills 1.65 1.6795 0.005
Six-month bills 1.84 1.8826 0.003
Two-year note 99-248/256 2.2661 0.000
Three-year note 99-122/256 2.436 0.000
Five-year note 99-222/256 2.6536 0.000
Seven-year note 99-156/256 2.812 0.000
10-year note 98-200/256 2.892 -0.002
30-year bond 97-48/256 3.1457 -0.013
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 31.50 1.00
spread
U.S. 3-year dollar swap 25.75 0.00
spread
U.S. 5-year dollar swap 14.00 0.50
spread
U.S. 10-year dollar swap 2.50 0.00
spread
U.S. 30-year dollar swap -15.75 0.75
spread
(Reporting by Kate Duguid; Editing by Jonathan Oatis)